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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: MANISH AGARWAL
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE BEFORE SHRI GEORGE MATHAN, JUDICIAL JUDICIAL MEMBER AND MANISH AGARWAL MANISH AGARWAL, ACCOUNTANT MEMBER , ACCOUNTANT MEMBER ITA No.342/CTK/2023 Assessment Year : 2018-2019 2019 M/s. M/s. Shiva Shiva Jyoti Jyoti Vs. The The Assessing Assessing Officer, Officer, Construction, At: Patrapur, Construction, At: Patrapur, NFAC, Delhi NFAC, Delhi Pattamundai, Kendrapara Pattamundai, Kendrapara PAN/GIR No PAN/GIR No.ABQFS 8602 P (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : Shri Sandeep Kumar Jena, Sandeep Kumar Jena, Adv Revenue by : Shri Sanjay Kumar, CIT Shri Sanjay Kumar, CIT DR Date of Hearing : 05/0 06/2024 Date of Pronouncement : 05/0 /06/2024 O R D E R Per Bench
This is an appeal filed by the assessee against the order of the This is an appeal filed by the assessee against the order of the This is an appeal filed by the assessee against the order of the ld CIT(A), NFAC, Delhi dated 11.9.2023 in Appeal No.NFAC CIT(A), NFAC, Delhi dated 11.9.2023 in Appeal No.NFAC CIT(A), NFAC, Delhi dated 11.9.2023 in Appeal No.NFAC/2017- 18/10087831 for the assessment year 2018-19.
Shri Sandeep kumar Jena, Sandeep kumar Jena, ld AR appeared for the assessee and Shri the assessee and Shri Sanjay Kumar, Sanjay Kumar, Ld CIT DR appeared for the revenue.
It was submitted by ld AR that the assessee It was submitted by ld AR that the assessee is a partnership firm engaged in the business of ‘works engaged in the business of ‘works contractor’ for contractor’ for Water Resources
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Department, Government of Odisha. It was the submission that when the assessment was done for Limited Scrutiny, the Assessing Officer had asked for various details and as the details could not be loaded within 5 MB space, all the details could not be produced and consequently, the Assessing Officer had resorted to provisions of section 144 of the Act. It was the submission that the limitation in the space for providing the details precluded the assessee from producing the details before the ld Assessing Officer and ld CIT(A). It was the submission that this had resulted into an exparte assessment and the rejection of the books of account of the assessee. It was the submission that the assessee’s income as estimated is liable to reduced. It was the submission that the assessee’s income as estimated is liable to be reduced from 8%. Ld AR of the assessee has also filed a letter, wherein, he has agreed to an estimation of the profit at 5% in the appeal. The letter filed by ld AR is as follows:
“Before the Hon’ble ITAT, Cuttack Bench ITA No.342/CTK/2023 A.Y. 2018-19 In the matter of : M/s Shiva Jyoti Construction. MEMO The appellant is agreed to estimate the profit @ 5% in this a appeal. By the appellant Cuttack Sd/- Dt.5.6.2024 (Sandeep Jena) Advocate”
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The assessee has also filed written submission, as follows:
“a) That the appellant is a contractor executes works contract under water Resources Department of Government of Odisha. That most of the contracts executed are of earth work excavation, road work river embankment and canal repair, and few relates to civil contract works at various locality in the state of Odisha. Those contracts were commenced from A/Ys- 2015-16 and under continuation till the end of the present financial year ending 31/03/ 2018. The appellant get its account audited by a C.A u/s. 44AB of the Income Tax Act 1961 (Act) for the A.Y. 2018-19 and filed its return of income on 30.10.2018 by disclosing net profit at Rs. 5,43,63,899.00 which is @ 5.28% after depreciation over a turnover of Rs. 1,03,64,,45,352.00 thereby disclose taxable income at Rs.3, 42, 42,760.00 in the return. The appellant also received interest income on income tax refund and fixed deposits made in order to procure works contract by way of earnest money and security deposits. The copy of the audited financial statements is enclosed herewith marked as ENCLOSURE-1. b) That the appellant firm has been converted in to a private limited company named as M/s. Shivajyoti Conpro Pvt. Ltd; which was incorporated on 20/03/2018, i.e. from the assessment year 2019-20 onwards also executes the same continued contracts. That the case of the appellant was selected for scrutiny under CASS for the reason of "Low net profit has shown by construction contractors and claim of large refund". The reason for selection of the case for scrutiny is appears to be invalid one for the reason that the appellant by taking all contractual receipts from different nature of works has arrived at the net profit @ 5.28% and the appellant did not execute construction contracts alone. c) That the Ld. AO (NFAC) issued statutory notices in order to make' assessment u/s 142(1) and 143(2) of the Act. In response to the same the appellant appeared and filed the documents as required by NFAC. However the NFAC required the appellant to upload the complete set of books of accounts with details bills & vouchers with a capacity of 5MB each file size which is practically impossible for the appellant. However the appellant tried its level best to upload the same but due to low capacity of the file size of 5MB the appellant manage to upload a part of the same but unable to upload the complete sets of the books of accounts with details bills and vouchers for verification due to such low capacity.
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d) The Ld. AO disbelieved the same and rejected the book result by invoking section 145(3) of the Act and taken the recourse of estimation by estimating the net profit @ 8% of the turnover. While doing so the Ld. AO, NFAC did not examine the past assessment records of the appellant and comparable cases in to consideration. The past record of the appellant shows that the Ld. AO has accepted the book result of the selfsame contracts which are also cover the present assessment year. The appellant is reproducing the past record for the last three preceding assessment years and subsequent AY 2019-20 in the case of the company in a chart given as below:
Sr. A.Y. Gross turnover of Profit declared Profit Remarks No the A by A percent age as per audited account 1 2015-16 39,16,95,184.00 2,02,85,383.00 5.18 U/s143(1),dated 21.112016.(Copy Enclosed) 2. 2016-17 47,61,40,581.00 2,36,83,624.00 5.1 U/s143(3) dated 26.12.2018. (Copy Enclosed ) 3. 2017-18 66,81,12,574.00 3,47,54,244.00 5.20 U/s143(3)dated 24.12.2019. Asst. order has not been uploaded by the AO,(the computation sheet Co Enclosed ) 4. 2018-19 1,03,64,45,352.00 5,43,63,899.00 5.25 Ld. AO Rejected the book result and estimated NP @ 8% by not verifying the asst record of the appellant. 5. 2019-20 81,16,89,868.00 4,49,75,779.00 5.54 Shivajyoti Conpro Pvt. Ltd: Copy of the relevant portion of the financial statement with 143(1)/154 dated 29.09.2020" is enclosed
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The copy of the assessment orders for the A/Y - 2015-16 to 2017-18 and copy of the relevant portion of the financial statement are enclosed herewith marked as Enclosure-2 series. Therefore in the impugned assessment order the Ld. AO, NFAC has taken a contradictory view by ignoring the past record of the appellant.
e) That while framing the assessment completely brushed aside the past assessment records of the appellant wherein the Ld. AO accepted the net profit between @ 5% to 5.5% as disclosed by the appellant for same continued contracts therefore the assessment order suffers lack of consistency. The law has been well settled by the jurisdictional Hon’ble High Court of Orissa in IT.A. Nos. 4, 5 & 6 of 2005 the case of M/s. Indian Metals & Ferro Alloys Ltd -versus- joint Commissioner of Income Tax, Bhubaneswar, wherein it has been held that the Revenue having accepted the assessee method of accounting for the preceding years there is no reason for it to reject the same of a contract spread over for subsequent years therefore the rejection of book result and estimation of profit is hit by rules of consistency. The copy of judgment dated, 17/11/2021 is enclosed herewith marked as ENCLOSURE-3. That in consideration of the aforesaid facts, submissions and the relevant documents this Hon'ble Bench may be pleased to disposed of this appeal. “
The assessee has also enclosed the audited financial statement for the impugned assessment year consisted of four
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pages, as follows:
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It was the submission that the rejection of the assessee’s books of account itself was wrong.
In reply, ld CIT DR submitted that the assessment u/s.144 of the Act is made on the basis of materials available on record. It was the submission that the Assessing Officer had adopted 8% profit on the basis of evidences that have not been produced. On account of non-production of the details in the course of assessment, the books of account have been rejected and on rejections of books of account, the estimation has been resorted to. It was the submission that the estimation has not been shown to be arbitrary. It was the submission that the decision relied upon by ld AR in the case of M/s. Indian Metals & Ferro Alloys Ltd and another vs JCIT in ITA No.4,5 & 6 of 2005 order dated 17.11.2021 was one where the rejection of books of account itself was reversed. It was the submission that in the present case, there was no option available with the Assessing Officer insofar as the assessee has not produced the details nor the books for verification. Ld CIT DR relied upon the decision in the case of CIT vs Sunil Talwar Murlidhar and Party reported in (2005) 199 CTR (Raj) 422 to submit that the estimation cannot ordinarily be interfered with.
In reply, ld AR submitted that the decision in the case of Sunil Talwar Murlidhar and Party (supra) would not apply at all insofar as that was a case of liquor dealer and in that case, it was categorically found that the
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issue adjudicated by the Tribunal was beyond the jurisdiction and, therefore, had been restored to the Tribunal for fresh adjudication.
We have considered the rival submissions. It would be worthwhile to reproduce the grounds of appeal raised by the assessee, which reads as follows:
“1. For that the reason on which the assessment order stands is not a valid reason, further the ld AO without any valid reason rejected the book result by estimating the net profit @ 8% which appears to be highly arbitrary and unreasonable. Under such circumstances, the net profit so estimated @ 8% may be reduced by taking comparable cases into consideration. 2. For that the AO while framing the assessment completely brushed aside the past assessment records of the appellant wherein the AO accepted the net profit between @ 5% to 6% as disclosed by the appellant for same continued contracts therefore the assessment order suffers lack of consistency. 3. For that while deciding the appeal, the ld CIT(A) ignored this fact and confirmed the assessment order which is not acceptable under laws. 4. For that the net profit so determined is absolutely unreasonable, therefore under such circumstances the reasonable profit may be determined and accepted. That the AO without any satisfaction initiated penalty proceeding s/s 270A of the Act in a mechanical manner on mere allegation of misreporting of income which is non application of mind on his part.”
A perusal of grounds of appeal in the present case clearly shows that the assessee has not challenged the rejection of books of account. The assessee has challenged only the estimation of the income. A perusal of the written submission, as extracted above, clearly shows that the assessee
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has been showing a profit margin of 5.16 to 5.54% as per the audited accounts for the assessment years 2015-16 to 2019-20. However, the peculiarity in the figures as shown by the assessee shows that for the assessment years 2015-16 to 2017-18 , the turnover of the assessee was far below Rs.100 crores. For the assessment year 2019-20 also, the turnover was below Rs.100 crores. Only for the impugned assessment year being 2018-19, the turnover is Rs.103 crores. Obviously, as the turnover goes up, it is the variable cost that would vary. The fixed cost of the business remained constant. Now what are the fixed costs? The fixed costs are salary to staff, rents, royalty, staff welfare expenses, vehicle maintenance expenses, office expenses, etc. The variable costs are the labour cost, material costs, etc. No explanation has been provided to show how the same percentage or the average of the percentage in respect of the turnover which are far below Rs.100 crores is to be considered when estimating the income for a year during which the turnover exceeds Rs.100 crores. In the face of this, we are also faced with the fact that the Assessing officer has not considered any comparative cases for estimating the income of the assessee at 8%. Admittedly, ld AR has filed a letter mentioning that he is agreeable to the estimation of profit at 5%. This is also not permissible insofar as during the impugned assessment year, the profit percentage disclosed itself is 5.25%. This 5.25% is admittedly before salary to partners, interest paid to partners, provision for firm tax. The
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reference to the decision relied upon by ld AR also does not help the assessee insofar as the assessee has not challenged the rejection of books of account and the assessee has not been able to produce any evidence to show that the rejection was not valid. In any case, the claim of ld AR that there is a limitation of 5 MBs space in regard to uploding of the details does not stand insofar as though there is a limitation of space of 5 MBs multiple 5 MBs are permitted to be uploaded. The assessee has not written to the AO or ld CIT(A) that the space provided is insufficient and, therefore, he needs the limitation lifted. The decision relied upon by ld CIT DR also is not applicable because same relates to a liquor dealer and the facts are entirely different from the facts in the present case. In these circumstances, considering the fact that the turnover of the assessee for the impugned assessment year is in excess of Rs.100 crores and turnover for the comparative years are far lesser than the turnover of the impugned assessment year, we are of the view that the estimation of the income of the assessee at 6.5% would be fair in respect of business income of the assessee i.e. 6.5% of the contract receipts. The assessee admittedly is also receiving income under the head “interest on income tax refund” and “interest on fixed deposits”. This admittedly is liable to be assessed under the head “income from other sources” separately and not as part of the business income of the assessee.
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In the result, appeal of the assessee stands partly allowed.
Order dictated and pronounced in the open court on 05/06/2024.
Sd/- sd/- (Manish Agarwal) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 05/06/2024 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : M/s. Shiva Jyoti Construction, At: Patrapur, Pattamundai, Kendrapara 2. The Respondent: The Assessing Officer, NFAC, Delhi 3. The CIT(A)- NFAC, Delhi 4. Pr.CIT, Cuttack 5. DR, ITAT, 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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